How to calculate a textile price: from cost build-up to FOB

Why a structured price calculation

A textile price is never a single number: it is the aggregation of around 15 unit lines in €/piece, covering the entire production chain. A manufacturer who cannot break down its price runs two risks: invoicing below break-even, or losing an order by overpricing a misestimated line.

At LOI Confection, every quotation is built on an Industrial Cost Build-up (PRI), line by line, then adjusted with a factory margin and commercial costs to reach the FOB price.

This article gives buyers the keys to read and challenge a textile quote line by line.

1. Fabric cost and consumption

Fabric is almost always the largest line (30 to 55 % of the cost build-up depending on the product). It is calculated as:

Fabric_cost = Price_per_meter × Unit_consumption × (1 + Waste_rate)

Parameters:

• Price per meter: fabric purchase price, converted to euros at the season's official rate (USD → EUR via a single seasonal rate).
• Unit consumption: meters needed per piece, derived from the marker.
• Waste rate: 6 to 12 % depending on pattern complexity and fabric width.

A 0.05 m error on consumption for a children's shirt at €7/m already adds €0.35 to the unit cost — equivalent to one margin point on certain orders.

2. Production and finishing trims

Two distinct sub-lines, not to be mixed:

• Production trims: threads, buttons, zippers, elastics, bias tape, linings. Direct cost depending on units per piece.
• Finishing trims: labels (composition, size, brand), hangtags, polybags, hangers, cartons. Often underestimated: €0.30 to €0.80/piece on layette.

Both lines are calculated from a trims sheet validated during sampling and frozen before production launch. Any later change triggers a recalculation of the cost build-up.

3. Treatments, wash, dye, print

These lines are classified as subcontracted services: external or intra-group services billed per piece. They directly impact the Value Added (see section 6) because they fall outside the scope of internal labour.

LOI Confection runs in-house wash, dye and print units, which secures lead times but does not change the accounting status of the line: it remains classified as a subcontracted service.

4. Machine and hand embroidery

Two very different logics:

• Machine embroidery: billed as a service, priced per 1,000 stitches. A 5,000-stitch design at €0.80/1,000 = €4.00/piece. High machine cadence, predictable cost.
• Hand embroidery: included in internal value added. Calculated as production minutes × loaded hourly rate (wage + employer charges + non-productive time). On a smocked ceremony dress, hand embroidery can represent 30 to 60 % of make-up cost.

Hand embroidery is a strong competitive advantage for Malagasy manufacturers, but it requires accurate minute forecasting to avoid eroding profitability.

5. Make-up and production minutes

Make-up is calculated from production minutes:

Make_up_cost = Minutes_per_piece × Loaded_hourly_rate / 60

Minutes per piece come, in order of priority:

1. From a manual override when field experience demands it.
2. From an automatic calculation based on the chosen cost source: standard, actual PRI, or weighted mix between PRI run and standard run.
3. From a historical average on similar products.

The loaded hourly rate includes base wage, employer charges (OSTIE, CNaPS, training fund in Madagascar) and non-productive time (paid leave, public holidays, sick leave). A headline wage never reflects the real cost; the loaded rate is the only metric comparable across countries.

The internal make-up cost (used for VA) groups together: machine embroidery + hand embroidery + accessories workshop + sewing.

6. Value added and margin

Value Added (VA) is the central management indicator:

VA = Selling_price − External_costs
External_costs = fabric + wash + dye + print + machine_embroidery + freight

It represents what the manufacturer actually captures after paying for external inputs. The margin on VA is then calculated:

VA_margin (%) = (Selling_price − Cost_build_up) / VA × 100

Not to be confused with the revenue margin:

Revenue_margin (%) = (Selling_price − Cost_build_up) / Selling_price × 100

A revenue margin of 8 % can correspond to a VA margin of 25 to 30 %, which is healthy in garment manufacturing. A buyer who negotiates only on revenue margin risks pushing the supplier below industrial break-even.

7. Commercial costs and FOB build-up

The industrial cost build-up is just that — industrial. To move to the FOB price, variable commercial costs are added:

• Samples: cost of prototypes amortised over the run (often €0.10 to €0.40/piece).
• LCs (letters of credit) and banking fees: 0.3 to 1.5 % of revenue depending on payment terms.
• Agent commission: 3 to 7 % of revenue when an agent is involved.
• Penalties, write-offs, contingencies: 0.5 to 2 % provision to cover delays or rework.
• Freight to port (FOB Toamasina or Antananarivo air): variable depending on Incoterm.

The final FOB price is therefore:

FOB = Industrial_cost_build_up + Factory_margin + Variable_commercial_costs

This is the price shown on the export invoice. The buyer then adds international freight, duties and downstream costs to obtain its landed cost (see our article on the hidden costs of textile sourcing).

Full worked example

Reference case: children's dress in cotton poplin, 1,500-piece run.

VA = 19.61 − (6.80 + 0.40 + 0.20 + 2.80 + 0.15) = €9.26 VA margin = (19.61 − 17.00) / 9.26 × 100 = 28.2 %

This grid lets you compare two quotes line by line, and identify within minutes the item that explains a price gap.